Wed, 11 Jun 2003

John Derbyshire tries to explain why we want unrestricted
immigration in his "The
Great Syllogism". I think he's mixing together pragmatic and
principled arguments.

We should allow unrestricted immigration not because it will result
in a more racially-balanced society, but instead because it's the
right thing to do. Unrestricted immigration is right because free
trade is right. No one should have the right to restrict my trading,
or my movement.

If anyone tells you that there should be any restrictions on
immigration, ask them why their argument doesn't apply to, say, New
Jersey. If we should have the right to keep people from Russia out,
why shouldn't we have the right to keep New Jerseyans out? Our
country has been very successful by allowing unrestricted immigration
between states.

Now to be specific about John's arguments. In his point #2, he
says that we have developed an equally strong desire for racial
equality. Perhaps we have, and perhaps any kind of successful action
will have to take that into account. We should also be clear that the
first and second part of #2 contradict each other. Maybe he's right,
but if he is, then we have to give up one or the other parts of #2.
He makes this point in #7.

John says in #3, "Our very best efforts at creating a meritocratic
education". Get real, John. The vast number of K-12 students in
America spend their day in the gulag. Stuck there, doing pointless
activities, told what to wear, where to go, when to go, and expected
to learn? This is not "our very best effort". Our school system is
the very model of modern socialism. It is pitiful, and produces
pitiful results, as John notices.

John gets to the meat of the problem with immigration: "10)
Therefore the manual class is seriously under-staffed." Ironically,
the people most likely to be against unrestricted immigration are
those who have most recently come here. Expanding the labor pool will
reduce the need to pay them more.

Sun, 08 Jun 2003

There seems to be huge amounts of angst over the way the FCC has
been allowing higher levels of media concentration. I'm not even going
to begin to link to everybody who's bemoaning it. If you notice,
economists are remaining silent on the issue. I'm gonna explain why.

I will go out on an economical limb and say that a corporation
never makes a "profit". Everything that comes into a company is owed
to someone. Perhaps it's not paid out immediately, but no matter, an
identifiable individual owns every bit of money. Employees get their
salaries, salesmen get their commissions, suppliers get their accounts
payables, banks get their interest, founders get their entrepreneurial
income.

Now, this last bit is the part that is often called "profit". It
comes from the creation of something new -- from the solution of a
sore-felt problem. Unfortunately, consumers are fickle. Just because
a company was the first to solve a problem, that doesn't mean that
consumers will stick with that company. Consumers have a tendency, in
a free market economy, to pursue identical solutions for less money,
or a better solution for the same money. This destroys
entrepreneurial income, or in more conventional economic terms,
competes away all profits. But that's okay! Without anybody
designing it to work that way, it forces entrepreneurs to keep
inventing.

Even small improvements to reduce cost or gain income, in their own
way, generate entrepreneurial income. Over time, though, there are
less and less improvements possible for the same thing. Once a thing
has gotten to that point, it is called a commodity. Competition to
provide commodities is fierce. Entrepreneurial profits can be had
through very small improvements, such as making a receipt 1/2"
shorter, so that 10% can be saved on a $100,000 bill for receipt
printer paper. If you have 238 stores, you might buy that much
receipt paper.

In the media market, we are awash in a stream of communications.
You can get your news via TV, radio, newspaper, website, and even your
cellphone. Does anybody remember pagers? A pager was like a
cellphone, only you couldn't talk on it, and you couldn't even send
messages out from one. You used to be able to get news through your
pager, too.

It's fair to say that communications has become a commodity market.
One of the things about a commodity market is that there is an intense
push to cut costs. That's why people who work in supermarkets usually
earn only the minimum wage. The owner can't afford to pay his workers
any more. People are usually the largest cost of any enterprise. A
typical medium-sized university will burn through a million dollars a
week just on salaries.

A media company like a radio, or TV, has a high personnel cost.
Takes a lot of people to man a station 24x7, or even 18x7. For the
most part, these people are doing the same thing from one station to
another to another. Given the commodity nature of communications,
there is going to be intense pressure to cut these costs. A media
company that can do that will make a lot of entrepreneurial profits.

In steps the FCC, though. They say "No, you can't own more than X%
of the media in a given area." They're concerned about monopolistic
control over a market. Their concern is mostly misplaced. Yes, there
are a limited number of frequencies which may be used in a single
area. However, there is still competition between the companies that
own these frequencies. Even if a company was to purchase all the
frequency licenses in a given area, they are still subject to
competition from other media. There's satellite radio, or Internet
radio, or websites, or newspapers, or nothing (one can always hit the
off button and prefer silence). In the end, a media company has to
produce something worth the attention, even if they own all the TV,
radio, and newspapers in a given market.

I think that the real concern is not so much about monopolies, but
is instead directed at preserving the jobs of people working in media
outlets. They realize that, like the followers of Ned Ludd,
commodification of the custom goods they are used to making is
threatening their jobs. This commodification helps everyone by making
higher quality goods available at a lower price. Rather than
accepting that which is best for everyone, they are arguing for
special protection under the law.

Special protection is responsible for 90% of the economic nonsense
that you see. Decry it whenever you see it, because it's money out of
your pocket.

Tue, 03 Jun 2003

When a government licenses an
occupation, they are censuring everyone else. If you're a recurring
reader of the Angry Economist, you'll know that economics and politics
are frequently at loggerheads with each other. Yet again, this is the
case.

New York City's Department of Consumer Affairs is saving us from
ever having a bad tour (that would be sarcasm, y'see) by licensing
tour guide. Just think about what this means. What if you were to
drive around Manhattan and tell people about all the cool things you
know about? In and of itself, that wouldn't be illegal. However, try
to accept money from people in return for this favor, and you'll be in
hot water! You'll be violating the law that says that tour guides
must be licensed.

Can you think of anything more ridiculous? What would happen if
someone got a tour from an unlicensed tour guide? What would happen
if a Greyhound bus driver started talking about what he sees? Yes,
nonviolent speech can violate a law, even in a country with a Bill of
Rights.

Why has this obviously unconstitutional law been allowed to stand?
Why is the right to free speech being infringed? I have no idea. The
most likely answer is that the people who cannot pass the hurdle to
become a tour guide do not have the resources to challenge the law.

The economic effect of licensure in general is to insert an
artificial barrier to competition. Any time you reduce competition,
you make the market work more poorly. You create conditions similar
to that of a monopoly or a cartel. Everyone who is currently licensed
has an interest in keeping anyone else from getting a license. Just
as unions don't want too
many union members, so, too, do members of a licensed occupation want
too many people to get the license. Hence, you see New York City's
making the test harder.

Conversely, any time an occupation becomes unlicensed where it had
been licensed (can anybody think of this happening?[1]), or the license
restrictions are reduced, this allows more people to enter the
occupation, and depresses wages. But oh! Depressing wages is bad,
right? No. Depressing wages by eliminating interference in the
market actually makes your society better-off. Many more people are
made a little bit happier than the few who are made sadder.
Unfortunately, the few who are made sadder are easily identified,
whereas the people made a little bit happier are hard to find. Even
if you could, they would probably have nothing to say about their
benefit. And yet, the benefit is real even if it's hard to measure
and politically hard to carry out.

That, in a nutshell, is the difficulty of a democratic society.
The democracy is subject to the concentrated interest of all its
citizens. Its tendency is to favor (at the same time!) group A over
group B, and group B over group A. On the whole, both these favors
make A and B worse off. However, the politician who recognizes this
and tries to do something about it will incur the wrath of both A and
B.

What do do about it? Well, help people to understand these types
of issues. So many people think that economics is obvious because
they can go to the store, buy something, and make change. It's not.
Economics is subtle. Economics can be used to point to fallacies like
rent control or minimum-wage laws. I'll write about both these topics
in time. Right now, you can help by linking to the Angry Economist,
and mentioning it in polite company when an economics issue comes up.

[1] update: Charles relates this example: for
years, in the province of Saskatchewan, you had to have a Chauffeur's
License to operate certain kinds of vehicles, including two- and
three-axle flatbed haulers used to haul cars. Made no sense, but that
was it. They took away that restriction; you can now get (say) a
garden shed hauled away by a hundred different operators for thirty
bucks where you might not have been able to have it done for a hundred
before. The competition is /intense/ now; every tow-truck company has
flatbed haulers and will happily haul anything they can drag onto them
with a winch. I had a kid's playhouse hauled away last year this
way.

Mon, 02 Jun 2003

How do you make decisions about things when resources are limited?
Well, quite clearly you do a cost versus benefit comparison. You
decide which thing gives you the most benefit for the least cost.
It's not necessarily just dividing and taking the largest number.
Sometimes something will cost a very large amount (that you can't
afford) and give you a larger unit of benefit per unit of cost than
something which costs less that you can afford.

How do you compare the costs of two things? It may seem obvious
but the most straightforward method is to compare the prices of them.
That doesn't necessarily reflect reality for you, but it comes close.
Now, how do you compare the cost of two things which are priceless?
It's much, much harder. We normally call something "priceless" when
we really mean that there is no price for which we would trade the
thing away. Another way people use "priceless" is to mean something
whose price is infinite. But that's just another way of saything the
same thing.

What you've just done is called "economic calculation". You're
using market prices to compare two otherwise incomparable things.
Let's say, though, that you're working for a government. You're
supposed to purchase some land, to protect it from development. Which
land do you purchase, though? Again, you make a cost vs benefit
comparison, and you purchase the land which gives you the most
benefit.

Now comes the problem. What if the things you're comparing have no
prices? If they're literally priceless? Let's say that you're
charged with protecting the environment in Massena, NY. Do you dredge
the St. Lawrence river to remove PCBs? Or do remediate the soil in
the Andrews St. park which is contaminated with oil (actually, I'm
just making this one up)? The government already owns the river, and
already owns the park. How can it possibly determine the value of the
river and compare it to the value of the park, if both are priceless?
Nobody is considering selling off the park, nor the river. Both are
literally priceless.

Governments cannot make wise economic decisions because they
have no basis for comparison. They can ask the voters to create fake
prices by polling them, or by asking for a vote. However, people will
say one thing, but when they have to expend their own resources,
they'll do something else. People will say, not what is best for
society, but what is best for them. That's not a prescription for
making wise decisions.